Home Loans for Purchases

What’s Involved in Buying a Home?

How The Purchase Process Works

In Simple Terms: A buyer finds a home, negotiates the terms of a purchase contract with the seller, gets an appraisal to verify value, orders a home inspection to check under the hood, and then signs final documents at the closing table where funds are distributed.

Since local market conditions, location, rates, and property availability can complicate the process, having a trusted mortgage and real estate professional in your corner will help you avoid unnecessary anxiety.

A Step-by-Step Guide to the Home Buying Process

Step One: Getting Pre-Qualified

When you meet with a lender for the first time, they will take a full application that will include a residence and employment history, a list of your bank accounts and balances, income, and all liabilities that may or may not show up on your credit report.

Based on your down payment and monthly budget goals, your lender will be able to give you a quick outlook of what loan programs are available for your unique scenario based on the information you provided.

At this point, your lender may provide you with a “Pre-Qualification” letter that your real estate agent will use as a benchmark for the price range and type of properties you’ll be placing offers on. The pre-qualification letter will also be presented to the seller as proof that you have the financial ability to purchase their property.

Step Two: Choosing A Loan Program

Each loan program has its own set of appraisal, property type and underwriting guidelines, which is why it is necessary to meet with a mortgage professional ahead of time. For example, VA Loans have strict condo requirements and USDA Rural Loans follow zoning and income limits.

Step Three: Finding A Real Estate Agent

Browsing the web for available properties before contacting a real estate agent while you get a feel for the market is a common pattern. However, many buyers make the mistake of contacting the listing agent for more information without having their own representation in the form of what’s called a buyer’s agent.

The listing agent represents the sellers, and has a duty to negotiate the best deal for the seller. On the other hand, a buyer’s agent represents the buyer and has the same duty to fight for their best deal.

Your real estate agent will be able to give you insight on the local housing market, neighborhood comps, and equity trends, as well as handling the negotiations between the seller to get your offer accepted.

Step Four: Final Underwriting Process

As soon as your purchase offer has been accepted by the seller, the clock starts ticking on a number of tasks that have to be completed within a certain timeline detailed in the purchase contract called the “due-diligence” period.

A full underwritten approval by the bank, an appraisal, and home inspections (depending on the loan type and contract) are the first three major timelines that need to be met when purchasing a home.

Appraisals are ordered through a third-party appraisal management company with extremely strict guidelines on who is allowed to have contact with the appraiser. Since property values in many parts of the country are rapidly moving in both directions during any given season, the appraisal can be one of the major snags that can hold up underwriting approval.

Obtaining updated title, escrow, loan payoffs, additional property liens, taxes, HOA paperwork, and other paperwork outside of the buyer’s control can result in a waiting game as well.

With all of these functions happening within a 20 – 60 day timeline, it is important that the buyer has all of their updated paperwork ready to go as soon as possible. This might also mean providing updated pay-stubs and bank statements the moment they become available throughout the underwriting process.

The lender’s underwriters will evaluate the property, title, and the borrower once the final loan package has been submitted. This can take anywhere from a few days to several weeks to come back with a final approval and conditions list.

Remaining conditions may include a final letter of explanation for findings on a credit report, an official verification of employment done by the bank, and an updated hazard insurance policy provided by the buyer’s home insurance agent.

Do not:

Make any major movement in your bank accounts

Apply for new credit or pay off old collections

Finance new furniture and appliances

Change your employment status

Step Five: Signing Closing Documents

With most of the paperwork and underwriting process complete, the lender will send the final loan documents to an escrow company or attorney, depending on your state.

Buyers and sellers meet separately to sign their stacks of documents and disclosures, which can take up to an hour or two.

This is the point where a buyer will bring a certified check to closing if there is a required down payment. Most purchase contracts require an “Earnest Money Deposit” as part of the offer that is held in an escrow account and used as leverage by the seller to ensure the purchase contract is followed and the due-diligence timelines are met. This is another reason why it is a good idea to have a buyer’s agent working in your corner to negotiate the most favorable terms.

The earnest money deposit can be applied towards the down payment and closing costs, with any remaining money refunded back to the buyer in the form of a check after a successful closing.

Step Six: Getting Your Keys

As soon as the final loan documents are sent back to the underwriter, and any additional loan conditions are signed off, your loan funds and the title is recorded at the county assessor’s office.

Many buyers want to know if they can get the keys at closing, but it generally takes a couple of extra days to process the final paperwork

Keys to Homeownership

Top Buyer Mistakes

Inspection Questions

FAQs About the Purchase Loan Process

Everyone wants to “buy low and sell high,” but sometimes life happens and you simply need to buy now without the luxury of perfectly timing the market. Limited inventory means that multiple buyers compete for the stock. That drives prices up and sellers generally have the advantage. In a seller’s market the power of a strong pre-qualification will give you an advantage on the competition.

Buying a home is a personal decision that should not be taken lightly. Many people purchase real estate to live in when they plan on staying in the same location for more than 5 years.

Your estate planner, CPA, and attorney are great resources to consult about any potential benefits that you may gain from owning a home.

Factors to consider include monthly payment, down payment, savings over renting vs buying, location, and lifestyle.

You should also consider the time you plan on staying in your new property before either selling or renting it out and purchasing something new.

Depending on whether we’re in a “buyer’s” or seller’s” market may also influence your decision to purchase real estate at any given moment.

If you are using a mortgage to purchase a property, it is highly likely that your real estate agent and the seller’s agent will require a pre-qualification letter prior to accepting a purchase offer.

The primary benefit of meeting with a mortgage professional prior to shopping for a property is to determine what programs you are eligible for, which also include monthly payment options, property types and down payment scenarios.

During a seller’s market when inventory is tight and purchase offers are highly competitive, having a solid pre-qualification letter may help the seller’s feel confident in your ability to follow through with your commitment to purchase the property.

Plenty! Be prepared to provide full tax returns for two years, full asset statements for three months, letters of explanation if you have anything unusual on your credit or job scenario, identification, and to sign a full packet of loan disclosures. The more documentation you can get signed-off ahead of time through the bank, the smoother your purchase transaction will be.

It depends how far into the pre-qualification process you are. There are outside factors that can stall a purchase transaction, such as title, appraisal, property liens, inspection, inspection issues…. and the list goes on. Do not commit to a short escrow if you are just exploring mortgage options and haven’t spent some time learning to trust your real estate agent’s professional opinion.

If you are financing your home then you need to talk with a mortgage professional first. It is fine to start researching properties and neighborhoods, but your mortgage professional will be able to give you a better idea of programs you are eligible for and price ranges that will keep you within your budget.

Both are part of your Real Estate Team, and your mortgage professional should have a trusted source of referral partners that they can introduce you to while you’re in the process of interviewing real estate professionals to help you with your home purchase.

If you need a mortgage, then your real estate agent should require you to have a pre-qualification letter prior to scheduling an appointment to preview properties, especially in a seller’s market.

The benefit of meeting with a mortgage professional ahead of time is that you can discuss various mortgage programs that may require specific language or property criteria that your agent needs to know about. Knowing what you can afford will also help your agent research and recommend the right listings for you to preview.

A “seller’s agent” represents the seller in the seller’s best interest.

Some buyers feel like they would get a better deal if they work directly with the agent selling the home, but that is generally not the case for the reasons mentioned above.Since a sales price is negotiated between a buyer and seller, this would give the seller a competitive advantage if they had the only professional representation in their corner.

In cases where the loan program does not require a home inspection, it is highly recommended that you request a home inspection as part of the purchase offer process. Your are purchasing a large asset and a home inspection is a key element in understanding if you are getting a good deal. The home inspection report should clearly identify any potential significant defects, and give the home buyer a realistic estimate of the costs of repairs so that they can be negotiated in an updated purchase contract.

It is common that a seller will pay the buyer’s agent’s commission, unless specifically stated in a contract. Keep in mind that a property should sell at fair market value, which is backed up by the professional opinion of the agent representing the buyer and validated by an appraisal.

By including title insurance when purchasing a property, your title insurer takes on accountability for legal expenses to defend your property title, should it ever be challenged. The title company who examined your property’s title, and subsequently issued a title insurance policy, will then take on the legal expenses to defend your interest in title for as long as you are in possession of an interest in the property. Lender’s title insurance is required and owner’s title insurance is optional, but definitely recommended.

When the final closing documents are signed by both parties and the loan has funded. This process can take anywhere from 2 – 10 hours generally. Weekends, end of the month, acts of God and final mortgage funding conditions can stall this process. Your lender and real estate agent will be all over everyone to make sure this final step is quick and painless.

NOTICE TO TEXAS CONSUMERS: COMPLAINTS REGARDING THE SERVICING OF YOUR MORTGAGE SHOULD BE SENT TO: THE DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 N Lamar, Suite 201 Austin, TX 78705. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.